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June 12, 2013

SEC, FINRA Warn of Email ‘Pump-and-Dump’ Stock Schemes

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The Securities and Exchange Commission and the Financial Industry Regulatory Authority on Wednesday warned investors about a “sharp increase” in email linked to “pump-and-dump” stock schemes.

These false claims, the alert says, could also be made on social media such as Facebook and Twitter as well as on bulletin boards and chat room pages.

Lori Schock, director of the SEC’s Office of Investor Education and Advocacy, said in a statement that “investors should always be wary of unsolicited investment offers in the form of an email from a stranger. The best response to investment spam is to hit delete.”

Cameron Funkhouser, executive vice president of FINRA’s Office of Fraud Detection and Market Intelligence, added in the same statement that “Spam email is the bait used to lure people into making bad investment decisions. No one should ever make an investment based on the advice of an unsolicited email.”

The two regulators explain that pump-and-dump promoters frequently claim to have “inside” information about an impending development. Others may say they use an “infallible” system that uses a combination of economic and stock market data to pick stocks. “These scams are the inbox equivalent of a boiler room sales operation, hounding investors with potentially false information about a company,” the alert states.

The fraudsters behind these scams, the alert goes on to say, stand to gain by selling their shares after the stock price is “pumped” up by the buying frenzy they create through the mass e-mail push. Once these fraudsters “dump” their shares by selling them and stop hyping the stock, investors lose their money or are left with worthless or near-worthless stock.